The FX landscape has changed quite considerably in a short space of time. What hasn’t changed is my view that we’ll be in for prolonged periods of US Dollar strength. As stated before, I see EUR/USD around 1.07 this year and GBP/USD around 1.45. If you’re a USD buyer I would consider looking at your exposure for the next six months and cover off at least 50% of it. The rates aren’t particularly attractive to purchase USD - a fish could tell you that. It is a case of where they are now compared to where they could go.
We had the FOMC (Federal Open Market Committee) meeting last night and the general theme is steady as she goes. Job gains have gone from “strong” to “solid”, Janet Yellen (Fed Chairman) played down low inflation and repeated her thoughts that they will remain “patient” on interest rate rises. It seems that the Fed are confident that inflation will rise, unemployment will come down, and that they’ll stick to their guns and raise interest rates at some point this year. When is the only question that remains. This, to me, translates to further USD strength this year. My suggestion is always to have a plan in place. Doing nothing is speculating. Please send me an email with any questions and we can discuss a strategy that works best for you.
Where now for GBP/EUR? I expect a gradual climb higher for the currency pair over the coming months. We may push upwards of 1.38/1.40 at some point. With the UK elections this year I expect volatility for Sterling and you don’t have to be a genius to know that political uncertainty is never good for a currency. That’s why I think we’ll settle around 1.32 or so this year. I may of course be completely wrong. There are some that think longer term (2016/2017) and if the EUR still exists in its present form that we may push to levels last seen in 2007 on GBP/EUR. Somewhere around 1.48. It is indeed a real possibility but with the way the political/global and economic landscape shifts these days I think we should stick to 2015 for now.
Forecast for the next few weeks –
· GBP/USD – 1.48-1.52
· GBP/EUR – 1.31-1.35
· EUR/USD – 1.10 – 1.14
If you have questions please do let me know.
Written by Liam Alexander